Monday, April 6, 2009

Ford Strengthens Its Position

As rival General Motors acknowledged that it was preparing for bankruptcy “if it’s required,” Ford Motor Co. continued to portray the character of a survivor with the $10 billion financial restructuring it announced today. The main thing Ford did was issue stock in exchange for much of its long-term debt. It also paid off some of its debt in cash.

The debt conversions at Ford are meant to track with those required of General Motors and Chrysler as a condition of their government bailout. Neither GM nor Chrysler has been able, to date, to restructure its debt in this fashion, which was one of the reasons, one of many, that the White House rejected their turnaround plans. Nothing so specific was required of Ford, which isn’t getting a bailout, but its efforts to follow the bailout guidelines might mean it hopes to be eligible for a bailout next year, if it turns out it needs one then.

But it might not. Ford’s remaining debt is said to be $15 billion, which sounds like a lot, but is less than two months of revenue for Ford. It is a very manageable debt load for Ford if the company can manage to break even over the next couple of years. That is a challenge, of course, in a time when sales of all durable goods are down sharply, but Ford, having spent the last two years cutting its capacity and fixed costs, is in a much better position to ride out the downturn than most other automakers.

The major automakers that are doing best so far in the U.S. market this year are Hyundai, Kia, and Subaru, with sales down only slightly from last year. Doing the worst is Mitsubishi, down 57 percent. This suggests that people are buying new cars based on practicality rather than attitude this year.